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Dominant Firm / Competitive Fringe Model
1. Draw DM, MCf, ACf, Sf, MCDF, ACDF
2. Find P @ MCf = ACf
3. Kink @ P = DM
4. P0 @ Sf = DM
5. Draw MRr
6. MCDF = MRr qDF,
P = qDF @ Dr
7. P = MCf qf, P = Sf Qf
8. P = DM Q
Dr
gap @ kinkMRM steeper after gap(DM steeper than Dr)
$
Q
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D r
qf Qf qDF QM
PP
P0
Step 1: Start GraphDraw DM, MCf, ACf, Sf, MCDF, ACDF
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
Step 2: Shutdown priceshutdown P @ MCf = ACf
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
P
Steps 3&4: Find Residual Demand P’s where fringe supplies all or none
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
D rP0
P
Step 5: Residual MR(slopes) Dr < MRr < MRM
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D rP0
P
Step 6: DF output, priceqDF @ MCDF=MRr; price from Dr
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D r
qDF
P0PP
Step 7: fringe q, Qqf @ Price = MCf; Qf @ Price = Sf
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D r
qf QfqDF
P0PP
Step 8: Total Q for MarketPrice @ Market D yields Market Q
Q
$
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D r
qf QfqDF QM
P0PP
Dominant Firm / Competitive Fringe Model
1. Draw DM, MCf, ACf, Sf, MCDF, ACDF
2. Find P @ MCf = ACf
3. Kink @ P = DM
4. P0 @ Sf = DM
5. Draw MRr
6. MCDF = MRr qDF,
P = qDF @ Dr
7. P = MCf qf, P = Sf Qf
8. P = DM Q
Dr
gap @ kinkMRM steeper after gap(DM steeper than Dr)
$
Q
ACDF
MCDF
DM
Sf
ACfMCf
MRM
MR r
D r
qf Qf qDF QM
PP
P0
Comparison vs. Monopoly
Q
$
ACDF
MCDF
DM
MRM
MR r
D r
qDF QM
P
PM
QM
Dominant Firm as Natural Monopoly
Q
$
ACDF
MCDF
DM
SfACfMCf
MRM
MR r
D r
qDF (= QM )
P0
PP
COSTLESS ENTRY
Q
$
ACDFMCDF
DM
Sf
ACfMCf
MRM
MRrDr =
P
COSTLESS ENTRY
Q
$
ACDFMCDF
DM
Sf
ACfMCf
MRM
MRrDr =
qf qDF QM
P